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Research from pensions and retirement specialist LV= highlights how millions of people are unprepared for retirement.
The LV= Wealth and Wellbeing Research Programme* - a quarterly survey of 4,000 UK adults – reveals that millions of people don’t know the age at which they will receive the State Pension, how much it will be worth and how they can avoid running out of money in retirement.
The research found:
The current State Pension is £185.15pw (payments depend on National Insurance contributions and past earnings). The State Pension age is currently 66 and set to rise to 68 between 2044 and 2046 for those born after 1977.
Confused by contributions
Large numbers of people do not know how much they are saving into a pension or how they can avoid running out of money in retirement.
The research found that about a quarter 23% (7m) of working adults do not know how much they are paying into a pension.
Some 14% (4m) working adults say they are not paying into a pension. A quarter 25% (8m) say they are paying 15% or more.
LV’s research indicates that the cost of living crisis may be taking its toll on pension contributions. Some 13% (4m) of working adults decreased their pension contributions in the past three months. This is an increase from 7% (2m) of working adults who said they decreased their pension contributions in September 2021.
Lack of knowledge about taking an income from pensions
Withdrawing money from a pension is also a problem for many people who do not understand how to ensure their pension fund lasts the rest of their life. The research found:
The research highlights the importance of people monitoring their retirement savings and the benefit of taking financial advice. Withdrawing large lump sums from a pension can land savers with a large tax bill while a couple who planned their finances jointly could generate a combined income of more than £33,000 a year without paying income tax.
“The latest LV= Wealth and Wellbeing Research Programme highlights how pensions confuse people.
“Planning for retirement can be complex but it is important to get right. People approaching retirement need to take some time to think about what they want to do when they eventually stop work, the lifestyle they want and how much it will cost.
“There are several simple steps that people can take to increase their confidence of being able to pay for a comfortable retirement. People in work should join their company pension scheme and make the most of an employer’s contributions. Self-employed people should consult a financial adviser and consider setting up a private pension. It’s also a good idea to regularly monitor the size of your retirement funds, including the expected State Pension to know if you’re on track.
“People have a series of big decisions to make as they approach the end of their working life and each one can make a huge difference to their retirement. Taking financial advice is an excellent idea. A financial adviser will provide impartial advice about how much they can draw from their pension to ensure they have an income for life. They can also explain to clients how to withdraw money from a pension and avoid large tax bills.”